Total Claims Collapse To Just 4.2 Million, Down 20 Million From A Year Ago, As Pandemic Benefits End

Total Claims Collapse To Just 4.2 Million, Down 20 Million From A Year Ago, As Pandemic Benefits End

Initial jobless claims dropped below their recent range last week, falling to the second lowest level since the COVID-lockdowns crushed the economy. Only 326k Americans filed for jobless benefits for the first time last week, down from 364k last week and below the 348k expectation.

Extended benefits also dropped from 2.811 million a week ago to 2.714 million most recently, also below the 2.762 million expected.

But more importantly, now that all emergency benefits have expired, the end of the welfare state is being felt far and wide and after printing regularly above 12 million for much of the summer, and around 25 million a year ago…

…total benefits collapsed to just 4.173 million in week ending Sept 18, down from 5 million a week prior and down more than 20 million from the 24.6 million a year ago!

The nearly 8 million people who have lost benefits in the past two weeks will now be looking for work so look for some fireworks in the October jobs report when it prints one month from tomorrow.

Tyler Durden
Thu, 10/07/2021 – 08:42

via ZeroHedge News https://ift.tt/2YoyqEw Tyler Durden

The Kobayashi Maru And The Dentist

The Kobayashi Maru And The Dentist

By Michael Every of Rabobank

As William Shatner finally goes into space at the age of 90 –to give us his renditions of Space Oddity, Lucy in the Sky with Diamonds, or Rocket Man?– Earth faces a mountain of problems; and markets, once again seizing on only ‘good news’, face the Kobayashi Maru scenario from ‘The Wrath of Khan’: a no-win scenario.

At one point Wednesday, natural gas prices in the UK and EU were up 40% on the day. That is not a supply shock: it’s a photon torpedo. Then Russia’s President Putin suggested he might have some spare gas lying around, and prices retreated to levels still as painful as William Shatner’s singing. Crisis over? Not until gas goes all the way back down again: and even if Russia magically fills the gas gap, it would still underline what an enormous geostrategic error the EU made in thinking energy supplies are not a pressure point on it – just as critics said would be the case when Angela Merkel opted for NordStream 2. When she goes to the dentist, does she opt for the cheapest one possible, or the one she trusts who costs more? As the old joke goes, realpolitik is getting your teeth done but, from the dentist’s chair, grabbing them somewhere important, and saying: “Do we have an understanding?” What else is there to understand?

In Congress, which knows from both pulling teeth and such grabbing, Mitch McConnell ”has blinked” by offering the Democrats a path to a short-term, small-cap debt-ceiling increase out to the end of the year. Except the Republicans are reportedly still going to insist on linking a proper end-year debt-ceiling hike –which would be more embarrassing for the Democrats to have to vote on again— to reconciliation, which again uses up that bullet there rather than on the desired elements of Progressive spending bills. In short, this crisis isn’t over yet either.

In Zurich, the US and China agreed to set up a virtual meeting between President Biden and Xi Jinping by year end – just as he will be tied up with the debt ceiling again. As the wags ask, is it better held on China’s Zoom or China’s TikTok for maximum security? It’s good for the US and China to be talking; and for the US to repeat it doesn’t want a Cold War, even as it pushes military alliances, tech controls, and threatens tariffs and new trade tools; and for China to say the same as it de facto decouples parts of its economy too. Yet Minxin Pei opines: “as security competition overshadows US-China relations, it will be nearly impossible for them to cooperate even on issues of mutual interest, such as climate change and future pandemics. All bilateral issues will be viewed only through the lens of national security and evaluated in terms of whether modest cooperation might strengthen the other’s security.” He adds the historical analogy that the pre-WW1 UK and Germany were tied together by trade –and royal blood– more than the US and China are today. Meanwhile, as Taiwan claims China will be capable of an invasion by 2025, the Global Times editor tweets: “PLA already has the ability NOW to liberate Taiwan at one stroke, why has to wait until 2025? That the mainland hasn’t taken the action is a goodwill of Beijing to treasure cross-Straits peace. I worry that the goodwill could be abused by Taiwan and the war is triggered suddenly.”

US Secretary of State Blinken, who wasn’t in Zurich, argues the energy crisis underlines the need for a push for green energy, which it does – while overlooking the fact that the green push also precipitated the crisis. Blinken is also asking China to “act responsibly and to deal effectively with any challenges” over Evergrande. On that note, the Financial Times repeats research showing in 2008, 75% of Chinese houses were bought by first-time buyers, but in 2018 this had fallen to 15%, with the rest snapped up by investors – as enough homes to house 90m people sit empty. Is this “responsible”, or Marxist ‘productive capital’? Can markets reasonably expect things to look the same when the dust settles? If so, it says a lot about markets and not a lot about Marxists. But what lies on the other side if not more bubbles? We simply don’t know. Higher growth is not likely to be a key part of it, however.

But of course, the deepest Kobayashi Maru challenge sits with central banks. With inflation raging, what are they to do? Tighten policy? Like that will help on top of tax hikes and higher prices! (**RED ANECDOTE ALERT** My favourite supermarket sushi just hiked prices on my favourite set by 40%. Set phasers to ‘less sushi’, sadly.) How about easing policy? Like that will help either!

We have already seen the RBNZ opt for the former path. In Australia, the rates market is certain hikes are coming. Poland just hiked. The chatter is the BOE will follow: or at least this is reportedly the UK Treasury’s expectation, and more so given the government openly flags it wants a high wage, high productivity economy when the former is the infinitely easier of the two to achieve, historically. And Fed tapering apparently looms. One wonders at how this will play out, and not even in the long term.  

Trying the other path, the ECB “will discuss boosting its regular asset purchases once the pandemic-era emergency stimulus comes to an end, but any such increase is by no means guaranteed,” says Governing Council member Muller. In short, while the Eurozone “recovery” –the recessionary energy crisis aside– will allow the ECB to end its EUR1.85trn pandemic bond-buying program in March 2022, the idea is already being floated of then compensating by increasing QE by another EUR20bn a month! And, of course, the EU is now all for subsidizing energy prices, which will only see those prices increase further, and likewise increase the whip-hand that President Putin now holds.

I repeat, neither monetary nor fiscal policy will be of much help unless they address the supply side of things, which right now they don’t. On which note, our recent ‘In Deep Ship’ report argued that smaller economies would logically start looking at diversifying trade to smaller vessels and/or consider launching national carriers as a response to current shipping snarls. As Splash247.com reports, US carrier Matson has now started a direct Shanghai-Auckland service using 707TEU and 516TEU vessels, on top of a Taiwanese carrier launching a 1,700 and 2,700TEU service between Qingdao, Shanghai, Ningbo, Nansha, Shekou and Tauranga. Moreover, “An extreme shortage of liner calls to New Zealand in recent months has prompted talk among exporters of the need to create a national shipping line.”

Such structural re-workings of the Kobayashi Maru scenario —which themselves open up very worrying geopolitical scenarios!— are arguably the only way one can defeat it, as Captain Kirk infamously did. Yet for most central banks, and governments, the greater likelihood is that they will boldly go into the mission to ‘Build Back Better’….and then end up like Lieutenant Saavik in her attempt:

“Activate escape pods. Send out the Log Buoy. …All hands abandon ship. Repeat, …all hands abandon ship.”

Tyler Durden
Thu, 10/07/2021 – 08:21

via ZeroHedge News https://ift.tt/306IlPZ Tyler Durden

The President at War

This is the fourth in a series of posts about my new book, Contested Ground: How to Understand the Limits of Presidential Power. The last two posts have been about domestic policy. Today, I’m going to gift gears to talk about the war power. This is one of the most fraught topics in constitutional law, with lives literally at stake. I’m keenly aware that some people have dedicated years to studying the President’s role in foreign affairs and the use of force. What follows is my best effort to make sense of the debate.

The Constitution contains five provisions granting military powers to Congress, and two provisions (or at least, arguably two) granting military powers to the President. The most important grant to Congress seems to be the power to declare war, which suggests by implication that only Congress can start a war. Like most other issues about the war power, however, the scope of the power to declare war is contested. Some, like my colleague John Yoo, consider it an archaic process that had lost relevance even by the time of the Framing. Others argue for a broader understanding of what it meant to declare war.

The clearest grant to the President is the Commander-in-Chief clause. I had always assumed that this was a broad grant of discretion to the President in deploying the military, subject only to whatever restrictions flow from the specific powers granted to Congress—most notably, Congress’s power to declare war. In researching the book, however, I was surprised to learn that the title of “command in chief” was not a special mark of distinction conferred on the President, but instead was a standard designation for military commanders. The clause seems more designed to ensure civilian control of the military than to confer broad discretion on the President over the use of force.

That leaves the Vesting Clause. The argument there is that the “executive power” was generally understood to include control over the use of force, including the power to go to war. In England, that power was vested in the King. I’m prepared to believe that the President has some ability to initiate the use of force, at least in cases of attack by another country. But I’m doubtful that the President’s power extends to the point of starting a war. To some extent, I rely on a “dog that didn’t bark” theory. If the Constitution was understood to give the President unilateral power to start wars, you would think that this would have been a topic of discussion during the Constitutional Convention and the ratification debates.

I also find a bit of post-enactment history particularly telling. This episode involved military conflict with a Creek tribe. Congress had authorized the use of the militia to support the regular army in defending the frontier. It seemed to assume that the President needed no special authority to use the regular army itself for defensive purposes. In an episode involving the Wabash Indians, Washington apparently read his authority as extending to attacks in reprisal for Indian marauders. This was criticized by at least one Senator as beginning a war without a congressional declaration.

Washington may have thought that reprisals were encompassed within the authority to defend the frontier, but he apparently did not think he was authorized to conduct purely offensive operations. There was pressure on Washington to take the offensive. He responded that he had been preparing for offensive measures against the Creeks whenever Congress gave the word: “The Constitution vests the power of declaring war with Congress; therefore no offensive expedition of importance can be undertaken until after they have deliberated on the subject, and authorized such a measure.” Apparently, he did not have in mind a formal declaration of war, which was never issued, but Congress did vote to support the offensive measures Washington advocated. Thus, Washington seemed very clear about who had the power to start an offensive war. And it wasn’t him.

Since I’m not an originalist, the Founding-era history isn’t decisive for me. Whatever may have been the intentions of the Framers, later history has much to say about the President’s power to go to war. Unfortunately, the lessons of that history are controversial. There has been a lot of variation in how the President and Congress have interacted regarding the decision to use military force. I won’t try to cover all that history in this setting. Nothing about the war power is uncontroversial. For me, at least, the general outline of the history is that Presidents have used military force on small scales, often for short periods, in order to protect American citizens and property. However, except in response to attack, Presidents have not felt free to take the country to war without congressional authorization in some form.

The major exception in modern times is the Korean War. It seems clear that Congress would have supported Truman’s decision to use troops. Truman and his advisors feared, however, that a formal declaration of war would escalate the conflict. Truman’s legal theory was based on the U.N. Charter. He argued that entering Korea was not an act of war under the Charter, since it was at the behest of the Security Council, and that Congress had implicitly consented by joining the U.N. At least given the U.N.’s failure to achieve the kind of robust role envisioned by its founders, I find it hard to believe that Truman’s argument would carry much weight today.

The biggest debate over the war power since then involved the Vietnam War. As a student, I was convinced that the war was unconstitutional because Congress failed to declare war. I now think, however, that the Bay of Tonkin resolution combined with other congressional support for the war was sufficient to legitimize our military presence.

I don’t expect there will ever to be a consensus about presidential deployment of the military. The issues are too fraught. This is an area where my “Contested Ground” title seems especially appropriate. In the absence of judicial intervention to set boundaries, the issue will be settled by the political branches and ultimately by public opinion. It seems to me, however, that the War Powers Act is roughly consistent with what we know about the original understanding and with the evolving practice. Constitutional law can help shape decision making but cannot ultimately control outcomes.

For the final post in this series, I’ll be discussing impeachment, the ultimate check on the presidential actions.

from Latest – Reason.com https://ift.tt/3uOcLlp
via IFTTT

The President at War

This is the fourth in a series of posts about my new book, Contested Ground: How to Understand the Limits of Presidential Power. The last two posts have been about domestic policy. Today, I’m going to gift gears to talk about the war power. This is one of the most fraught topics in constitutional law, with lives literally at stake. I’m keenly aware that some people have dedicated years to studying the President’s role in foreign affairs and the use of force. What follows is my best effort to make sense of the debate.

The Constitution contains five provisions granting military powers to Congress, and two provisions (or at least, arguably two) granting military powers to the President. The most important grant to Congress seems to be the power to declare war, which suggests by implication that only Congress can start a war. Like most other issues about the war power, however, the scope of the power to declare war is contested. Some, like my colleague John Yoo, consider it an archaic process that had lost relevance even by the time of the Framing. Others argue for a broader understanding of what it meant to declare war.

The clearest grant to the President is the Commander-in-Chief clause. I had always assumed that this was a broad grant of discretion to the President in deploying the military, subject only to whatever restrictions flow from the specific powers granted to Congress—most notably, Congress’s power to declare war. In researching the book, however, I was surprised to learn that the title of “command in chief” was not a special mark of distinction conferred on the President, but instead was a standard designation for military commanders. The clause seems more designed to ensure civilian control of the military than to confer broad discretion on the President over the use of force.

That leaves the Vesting Clause. The argument there is that the “executive power” was generally understood to include control over the use of force, including the power to go to war. In England, that power was vested in the King. I’m prepared to believe that the President has some ability to initiate the use of force, at least in cases of attack by another country. But I’m doubtful that the President’s power extends to the point of starting a war. To some extent, I rely on a “dog that didn’t bark” theory. If the Constitution was understood to give the President unilateral power to start wars, you would think that this would have been a topic of discussion during the Constitutional Convention and the ratification debates.

I also find a bit of post-enactment history particularly telling. This episode involved military conflict with a Creek tribe. Congress had authorized the use of the militia to support the regular army in defending the frontier. It seemed to assume that the President needed no special authority to use the regular army itself for defensive purposes. In an episode involving the Wabash Indians, Washington apparently read his authority as extending to attacks in reprisal for Indian marauders. This was criticized by at least one Senator as beginning a war without a congressional declaration.

Washington may have thought that reprisals were encompassed within the authority to defend the frontier, but he apparently did not think he was authorized to conduct purely offensive operations. There was pressure on Washington to take the offensive. He responded that he had been preparing for offensive measures against the Creeks whenever Congress gave the word: “The Constitution vests the power of declaring war with Congress; therefore no offensive expedition of importance can be undertaken until after they have deliberated on the subject, and authorized such a measure.” Apparently, he did not have in mind a formal declaration of war, which was never issued, but Congress did vote to support the offensive measures Washington advocated. Thus, Washington seemed very clear about who had the power to start an offensive war. And it wasn’t him.

Since I’m not an originalist, the Founding-era history isn’t decisive for me. Whatever may have been the intentions of the Framers, later history has much to say about the President’s power to go to war. Unfortunately, the lessons of that history are controversial. There has been a lot of variation in how the President and Congress have interacted regarding the decision to use military force. I won’t try to cover all that history in this setting. Nothing about the war power is uncontroversial. For me, at least, the general outline of the history is that Presidents have used military force on small scales, often for short periods, in order to protect American citizens and property. However, except in response to attack, Presidents have not felt free to take the country to war without congressional authorization in some form.

The major exception in modern times is the Korean War. It seems clear that Congress would have supported Truman’s decision to use troops. Truman and his advisors feared, however, that a formal declaration of war would escalate the conflict. Truman’s legal theory was based on the U.N. Charter. He argued that entering Korea was not an act of war under the Charter, since it was at the behest of the Security Council, and that Congress had implicitly consented by joining the U.N. At least given the U.N.’s failure to achieve the kind of robust role envisioned by its founders, I find it hard to believe that Truman’s argument would carry much weight today.

The biggest debate over the war power since then involved the Vietnam War. As a student, I was convinced that the war was unconstitutional because Congress failed to declare war. I now think, however, that the Bay of Tonkin resolution combined with other congressional support for the war was sufficient to legitimize our military presence.

I don’t expect there will ever to be a consensus about presidential deployment of the military. The issues are too fraught. This is an area where my “Contested Ground” title seems especially appropriate. In the absence of judicial intervention to set boundaries, the issue will be settled by the political branches and ultimately by public opinion. It seems to me, however, that the War Powers Act is roughly consistent with what we know about the original understanding and with the evolving practice. Constitutional law can help shape decision making but cannot ultimately control outcomes.

For the final post in this series, I’ll be discussing impeachment, the ultimate check on the presidential actions.

from Latest – Reason.com https://ift.tt/3uOcLlp
via IFTTT

Futures Surge On Debt Ceiling Reprieve, Slide In Energy Prices

Futures Surge On Debt Ceiling Reprieve, Slide In Energy Prices

The nausea-inducing rollercoaster in the stock market continued on Thursday, when US index futures continued their violent Wednesday reversal – the biggest since March – and surged with Nasdaq futures up more than 1%, hitting a session high, as Chinese technology stocks rebounded from a record low, investors embraced progress on the debt-ceiling impasse in Washington, a dip in oil prices eased worries of higher inflation and concerns eased about the European energy crisis fueled a risk-on mood. At 7:30am ET, S&P futures were up 44 points or 1.00% and Dow futures were up 267 points or 0.78%. Oil tumbled as much as $2, dragging breakevens and nominal yields lower, while the dollar dipped and bitcoin traded around $54,000.

Wednesday’s reversal started after Mitch McConnell on Wednesday floated a plan to support an extension of the federal debt ceiling into December, potentially heading off a historic default, a proposal which Democrats have reportedly agreed to after Senate Majority Leader Chuck Schumer suggested an agreement would be in place by this morning. While the deal is good news for markets worried about an imminent default, it only kicks the can to December when the drama and brinksmanship may run again.

Markets have been rocked in the past month by worries about the global energy crisis, elevated inflation, reduced stimulus and slower growth. Meanwhile, the prospect of a deal to boost the U.S. debt limit into December is easing concern over political bickering, while Friday’s payrolls report may shed light on the the Federal Reserve’s timeline to cut bond purchases.

“We have several things that we are watching right now — certainly the debt ceiling is one of them and that’s been contributing to the recent volatility,” Tracie McMillion, head of global asset allocation strategy at Wells Fargo Investment Institute, said on Bloomberg Television. “But we look for these 5% corrections to add money to the equity markets.”

Tech and FAAMG stocks including Apple (AAPL US +1%), Nvidia (NVDA +2%), Microsoft (MSFT US +0.9%), Tesla (TSLA US 0.8%) led the charge in premarket trading amid a dip in 10-year Treasury yields on Thursday, helped by a slide in energy prices on the back of Putin’s Wednesday announcement that Russia could ramp up nat gas deliveries to Europe, something it still has clearly not done.

Perhaps sensing that not all is at Putin said, after plunging on Wednesday UK nat gas futures (NBP) from 407p/therm to a low of 209, prices have ominously started to rise again.

As oil fell, energy stocks including Chevron, Exxon Mobil and APA led declines with falls between 0.6% and 2.1%. Here are some of the other big movers today:

  • Twitter (TWTR US) shares rise 2% in U.S. premarket trading after it agreed to sell MoPub to AppLovin for $1.05 billion in cash
  • Levi Strauss (LEVI US) rises 4% in U.S. premarket trading after it boosted its adjusted earnings per share forecast for the full year; the guidance beat the average analyst estimate
  • NRX Pharmaceuticals (NRXP US) drops in U.S. premarket trading after Relief Therapeutics sued the company, alleging breach of a collaboration pact
  • Osmotica Pharmaceuticals (OSMT US) declined 28% in premarket trading after launching an offering of shares
  • Rocket Lab USA (RKLB US) shares rose in Wednesday postmarket trading after the company announced it has been selected to launch NASA’s Advanced Composite Solar Sail System, or ACS3, on the Electron launch vehicle
  • U.S. Silica Holdings (SLCA US) rose 7% Wednesday postmarket after it started a review of strategic alternatives for its Industrial & Specialty Products segment, including a potential sale or separation
  • Global Blood Therapeutics (GBT US) climbed 2.6% in Wednesday after hours trading while Sage Therapeutics (SAGE US) dropped 3.9% after Jefferies analyst Akash Tewari kicked off his biotech sector coverage

On the geopolitical front, a senior U.S. official said President Joe Biden’s plans to meet virtually with his Chinese counterpart before the end of the year. Tensions are escalating between the two countries, with U.S. Secretary of State Antony Blinken criticizing China’s recent military maneuvers around Taiwan.

European equities rebounded, with the Stoxx 600 index surging as much as 1.3% boosted by news that the European Central Bank was said to be studying a new bond-buying program as emergency programs are phased out. Also boosting sentiment on Thursday, ECB Governing Council member Yannis Stournaras said that investors shouldn’t expect premature interest-rate increases from the central bank. Here are some of the biggest European movers today:

  • Iberdrola shares rise as much as 6.8% after an upgrade at BofA, and as Spanish utilities climbed following a report that the Ministry for Ecological Transition may suspend or modify the mechanism that reduces the income received by hydroelectric, nuclear and some renewables in relation to gas prices.
  • Hermes shares climb as much as 3.8%, the most since February, after HSBC says “there isn’t much to worry about” from a possible slowdown in mainland China or questions over trend sustainability in the U.S.
  • Edenred shares gain as much as 5.2%, their best day since Nov. 9, after HSBC upgrades the voucher company to buy from hold, saying that Edenred, along with Experian, offers faster recurring revenue growth than the rest of the business services sector.
  • Valeo shares gain as much as 4.9% and is Thursday’s best performer in the Stoxx 600 Automobiles & Parts index; Citi raised to neutral from sell as broker updated its model ahead of 3Q results.
  • Sika shares rise as much as 4.2% after company confirms 2021 guidance, which Baader said was helpful amid market concerns of sequentially declining margins due to rising raw material prices.
  • Centrica shares rise as much as 3.6% as Morgan Stanley upgrades Centrica to overweight from equalweight, saying the utility provider will add market share as smaller U.K. companies fail due to the spike in wholesale energy prices.

Earlier in the session, Asian stocks rallied, boosted by a rebound in Hong Kong-listed technology shares and optimism over the progress made toward a U.S. debt-ceiling accord. The MSCI Asia Pacific Index climbed as much as 1.3%, on track for its biggest jump since Aug. 24. Alibaba, Tencent and Meituan were among the biggest contributors to the benchmark’s advance. Equity gauges in Hong Kong and Taiwan led a broad regional gain, while Japan’s Nikkei 225 also rebounded from its longest losing run since 2009. Thursday’s rally in Asia came after U.S. stocks closed higher overnight on a possible deal to boost the debt ceiling into December. Focus now shifts to the reopening of mainland China markets on Friday following the Golden Week holiday, and also the U.S. nonfarm payrolls report due that day. READ: China Tech Gauge Posts Best Day Since August After Touching Lows “Risk off sentiment has persisted due to a number of negative factors, but worry over some of these issues has been alleviated for the near term,” said Shogo Maekawa, a strategist at JPMorgan Asset Management in Tokyo. “One is that concern over stagflation has abated, with oil prices pulling back.” Sentiment toward risks assets was also supported as a senior U.S. official said President Joe Biden plans to meet virtually with Chinese President Xi Jinping before the end of the year.

Of note, holders of Evergrande-guaranteed Jumbo Fortune bonds have yet to receive payment; the holders next step would be to request payment from Evergrande. The maturity of the bond in question was Sunday October 3rd, with a Monday October 4th effective due data, though the bond does have a five-day grace period only in the event that payment failure is due to an administrative/technical error.

Australia’s S&P/ASX 200 index rose 0.7% to close at 7,256.70. All subgauges finished the day higher, with the exception of energy stocks as Asian peers tumbled with a retreat in crude oil prices.  Collins Foods was among the top performers after the company signed an agreement to become KFC’s corporate franchisee in the Netherlands. Whitehaven tumbled, dropping the most for a session since June 17.  In New Zealand, the S&P/NZX 50 index fell 0.5% to 13,104.61.

Oil extended its decline from a seven-year high as U.S. stockpiles grew more than expected, and European natural gas prices tumbled on signals from Russia it may increase supplies to the continent.

The yield on the U.S. 10-year Treasury was 1.526%, little changed on the day after erasing a 2.4bp increase; bunds outperformed by ~1.5bp, gilts by less than 1bp; long-end outperformance flattened 2s10s, 5s30s by ~0.5bp each. Treasuries pared losses during European morning as fuel prices ebbed and stocks gained. Bunds and gilts outperform while Treasuries curve flattens with long-end yields slightly richer on the day. WTI oil futures are lower after Russia’s offer to ease Europe’s energy crunch. Negotiations on a short-term increase to U.S. debt-ceiling continue.   

In FX, the Bloomberg Dollar Spot Index was little changed and the greenback was weaker against most Group-of-10 peers, though moves were confined to relatively tight ranges. The U.S. jobs report Friday is the key risk for markets this week as a strong print could boost the dollar. Options traders see a strong chance that the euro manages to stay above a key technical support, at least on a closing basis. Risk sensitive currencies such as the Australian and New Zealand dollars as well as Sweden’s krona led G-10 gains, while Norway’s currency was the worst performer as European natural gas and power prices tumbled early Thursday after signals from Russia it may increase supplies to the continent. The pound gained against a broadly weaker dollar as concerns over the U.K. petrol crisis eased and focus turned to Bank of England policy. A warning shot buried deep in the BoE’s policy documents two weeks ago indicating that interest rates could rise as early as this year suddenly is becoming a more distinct possibility. Australia’s 10-year bonds rose for the first time in two weeks as sentiment was bolstered by a short-term deal involving the U.S. debt ceiling. The yen steadied amid a recovery in risk sentiment as stocks edged higher. Bond futures rose as a debt auction encouraged players to cautiously buy the dip.

Looking ahead, investors will be looked forward to the release of weekly jobless claims data, likely showing 348,000 Americans filed claims for state unemployment benefits last week compared with 362,000 in the prior week. The ADP National Employment Report on Wednesday showed private payrolls increased by 568,000 jobs last month. Economists polled by Reuters had forecast a rise of 428,000 jobs. This comes ahead of the more comprehensive non-farm payrolls data due on Friday. It is expected to cement the case for the Fed’s slowing of asset purchases. We’ll also get the latest August consumer credit print. From central banks, we’ll be getting the minutes from the ECB’s September meeting, and also hear from a range of speakers including the ECB’s President Lagarde, Lane, Elderson, Holzmann, Schnabel, Knot and Villeroy, along with the Fed’s Mester, BoC Governor Macklem and PBoC Governor Yi Gang.

Market Snapshot

  • S&P 500 futures up 1% to 4,395.5
  • STOXX Europe 600 up 1.03% to 455.96
  • MXAP up 1.2% to 193.71
  • MXAPJ up 1.8% to 633.78
  • Nikkei up 0.5% to 27,678.21
  • Topix down 0.1% to 1,939.62
  • Hang Seng Index up 3.1% to 24,701.73
  • Shanghai Composite up 0.9% to 3,568.17
  • Sensex up 1.2% to 59,872.01
  • Australia S&P/ASX 200 up 0.7% to 7,256.66
  • Kospi up 1.8% to 2,959.46
  • Brent Futures down 1.8% to $79.64/bbl
  • Gold spot up 0.0% to $1,762.96
  • U.S. Dollar Index little changed at 94.19
  • German 10Y yield fell 0.6 bps to -0.188%
  • Euro little changed at $1.1563

Top Overnight News from Bloomberg

  • Democrats signaled they would take up Senate Republican leader Mitch McConnell’s offer to raise the U.S. debt ceiling into December, alleviating the immediate risk of a default but raising the prospect of another bruising political fight near the end of the year
  • The European Central Bank is studying a new bond-buying program to prevent any market turmoil when emergency purchases get phased out next year, according to officials familiar with the matter
  • Market expectations for interest-rate hikes “are not in accordance with our new forward guidance,” ECB Governing Council member Yannis Stournaras said in an interview with Bloomberg Television
  • Creditors have yet to receive repayment of a dollar bond they say is guaranteed by China Evergrande Group and one of its units, in what could be the firm’s first major miss on maturing notes since regulators urged the developer to avoid a near-term default
  • Boris Johnson’s plan to overhaul the U.K. economy is a 10-year project he wants to see out as prime minister, according to a senior official. The time frame, which has not been disclosed publicly, illustrates the scale of Johnson’s gamble that British voters will accept a long period of what he regards as shock therapy to redefine Britain
  • The U.K.’s surge in inflation has boosted the cost of investment-grade borrowing in sterling to the most since June 2020. The average yield on the corporate notes climbed just past 2%, according to a Bloomberg index

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks traded positively as the region took impetus from the mostly positive close in the US where the major indices spent the prior session clawing back opening losses, with sentiment supported amid a potential Biden-Xi virtual meeting this year, and hopes of a compromise on the debt ceiling after Senate Republican Leader McConnell offered a short-term debt limit extension to December. The ASX 200 (+0.7%) was led higher by strength in the tech sector and with risk appetite also helped by the announcement to begin easing restrictions in New South Wales from next Monday. The Nikkei 225 (+0.5%) attempted to reclaim the 28k level with advances spearheaded by tech and amid reports Tokyo is to lower its virus warning from the current top level. The Hang Seng (+3.1%) was the biggest gainer owing to strength in tech and property stocks, with Evergrande shareholder Chinese Estates surging in Hong Kong after a proposal from Solar Bright to take it private. Reports also noted that the US and China reportedly reached an agreement in principle for a Biden-Xi virtual meeting before year-end and with yesterday’s talks in Zurich between senior officials said to be more meaningful and constructive than other recent exchanges. Finally, 10yr JGBs retraced some of the prior day’s after-hours rebound with haven demand hampered by the upside in stocks and after the recent choppy mood in T-notes, while the latest enhanced liquidity auction for longer-dated JGBs resulted in a weaker bid-to-cover.

Top Asian News

  • Vietnam Faces Worker Exodus From Factory Hub for Gap, Nike, Puma
  • Japan’s New Finance Minister Stresses FX Stability Is Vital
  • Korea Lures Haven Seekers With Bonds Sold at Lowest Spread
  • Africa’s Free-Trade Area to Get $7 Billion in Support From AfDB

Bourses in Europe hold onto the gains seen at the cash open (Euro Stoxx 50 +1.5%; Stoxx 600 +1.1%) following on from an upbeat APAC handover, albeit the upside momentum took a pause shortly after the cash open. US equity futures are also firmer across the board but to a slightly lesser extent, with the tech-laden NQ (+1.0%) getting a boost from a pullback in yields and outperforming its ES (+0.7%), RTY (+0.6%) and YM (+0.6%). The constructive tone comes amid some positive vibes out of the States, and on a geopolitical note, with US Senate Minority Leader McConnell offered a short-term debt ceiling extension to December whilst US and China reached an agreement in principle for a Biden-Xi virtual meeting before the end of the year. Euro-bourses portray broad-based gains whilst the UK’s FTSE 100 (+1.0%) narrowly lags the Euro Stoxx benchmarks, weighed on by its heavyweight energy and healthcare sectors, which currently reside at the foot of the bunch. Further, BoE’s Chief Economist Pill also hit the wires today and suggested that the balance of risks is currently shifting towards great concerns about the inflation outlook, as the current strength of inflation looks set to prove more long-lasting than originally anticipated. Broader sectors initially opened with an anti-defensive bias (ex-energy), although the configuration since then has turned into more of a mixed picture, although Basic Resource and Autos still reside towards the top. Individual movers are somewhat scarce in what is seemingly a macro-driven day thus far. Miners top the charts on the last day of the Chinese Golden Week Holiday, with base metal prices also on the front foot in anticipation of demand from the nation – with Antofagasta (+5.1%), Anglo American (+4.2%) among the top gainers, whist Teamviewer (-8.2%) is again at the foot of the Stoxx 600 in a continuation of the losses seen after its guidance cut yesterday. Ubisoft (-5.1%) are also softer, potentially on a bad reception for its latest Ghost Recon game announcement.

Top European News

  • ECB’s Stournaras Reckons Investor Rate-Hike Bets Are Unwarranted
  • Shell Flags Financial Impact of Gas Market Swings, Hurricane
  • Johnson’s Plans for Economy Signal Ambitions for Decade in Power
  • U.K. Grid Bids to Calm Market Saying Winter Gas Supply Is Enough

In FX, the latest upturn in broad risk sentiment as the pendulum continues to swing one way then the other on alternate days, has given the Aussie a fillip along with news that COVID-19 restrictions in NSW remain on track for being eased by October 11, according to the state’s new Premier. Aud/Usd is eyeing 0.7300 in response to the above and a softer Greenback, while the Aud/Nzd cross is securing a firmer footing above 1.0500 in wake of a slender rise in AIG’s services index and ahead of the latest RBA FSR. Conversely, the Pound is relatively contained vs the Buck having probed 1.3600 when the DXY backed off further from Wednesday’s w-t-d peak to a 94.102 low and has retreated through 0.8500 against the Euro amidst unsubstantiated reports about less hawkish leaning remarks from a member of the BoE’s MPC. In short, the word is that Broadbent has downplayed the prospects of any fireworks in November via a rate hike, but on the flip-side new chief economist Pill delivered a hawkish assessment of the inflation situation in the UK when responding to a TSC questionnaire (see 10.18BST post on the Headline Feed for bullets and a link to his answers in full). Back to the Dollar index, challenger lay-offs are due and will provide another NFP guide before claims and commentary from Fed’s Mester, while from a technical perspective there is near term support just below 94.000 and resistance a fraction shy of 94.500, at 93.983 (yesterday’s low) and the aforementioned midweek session best (94.448 vs the 94.283 intraday high, so far).

  • NZD – Notwithstanding the negative cross flows noted above, the Kiwi is also taking advantage of more constructive external and general factors to secure a firmer grip of the 0.6900 handle vs its US counterpart, but remains rather deflated post-RBNZ on cautious guidance in terms of further tightening.
  • EUR/CHF/CAD/JPY – All narrowly mixed against their US peer and mostly well within recent ranges as the Euro reclaims 1.1500+ status in the run up to ECB minutes, the Franc consolidates off sub-0.9300 lows following dips in Swiss jobless rates, the Loonie weighs up WTI crude’s further loss of momentum against the Greenback’s retreat between 1.2600-1.2563 parameters awaiting Canada’s Ivey PMIs and a speech from BoC Governor Macklem, and the Yen retains an underlying recovery bid within 111.53-23 confines before a raft of Japanese data. Note, little reaction to comments from Japanese Finance Minister, when asked about recent Jpy weakening, as he simply said that currency stability is important, so is closely watching FX developments, but did not comment on current levels.

In commodities, WTI and Brent front month futures are on the backfoot, in part amid the post-Putin losses across the Nat Gas space, with the UK ICE future dropping some 20% in early trade. This has also provided further headwinds to the crude complex, which itself tackles its own bearish omens. WTI underperforms Brent amid reports that the US was mulling a Strategic Petroleum Reserve (SPR) release and did not rule out an export ban. Desks have offered their thoughts on the development. Goldman Sachs says a US SPR release would likely be of up to 60mln barrels, only representing a USD 3/bbl downside to the year-end USD 90/bbl Brent forecast and stated that relief would only be transitory given structural deficits the market will face from 2023 onwards. GS notes that any larger price impact that further hampers US shale activity would lead to elevated US nat gas prices in 2022, and an export ban would lead to significant disruption within the US oil market, likely bullish retail fuel price impact. RBC, meanwhile, believes that these comments were to incentivise OPEC+ to further open the taps after the producers opted to maintain a plan to hike output 400k BPD/m. On that note, sources noted that the OPEC+ decision against a larger supply hike at Monday’s meeting was partly driven by concern that demand and prices could weaken – this would be in-fitting with sources back in July, which suggested that demand could weaken early 2022. The downside for crude prices was exacerbated as Brent Dec fell under USD 80/bbl to a low of near 79.00/bbl (vs 81.14/bbl), whilst WTI Nov briefly lost USD 75/bbl (vs high 77.23/bbl). Prices have trimmed some losses since. Metals in comparison have been less interesting; spot gold is flat and only modestly widened its overnight range to the current 1,756-66 range, whilst spot silver remains north of USD 22.50/bbl. Elsewhere, the risk tone has aided copper prices, with LME copper still north of USD 9,000/t, whilst some also cite supply concerns as a key mining road in Peru (second-largest copper producer) was blocked, with the indigenous community planning to continue the blockade indefinitely, according to a local leader. It is also worth noting that Chinese markets will return tomorrow from their Golden Week holiday.

US Event Calendar

  • 7:30am: Sept. Challenger Job Cuts YoY, prior -86.4%
  • 8:30am: Oct. Initial Jobless Claims, est. 348,000, prior 362,000; Continuing Claims, est. 2.76m, prior 2.8m
  • 9:45am: Oct. Langer Consumer Comfort, prior 54.7
  • 11:45am: Fed’s Mester Takes Part in Panel on Inflation Dynamics
  • 3pm: Aug. Consumer Credit, est. $17.5b, prior $17b

DB’s Jim Reid concludes the overnight wrap

On the survey, given how fascinating markets are at the moment I think the results of this month’s edition will be especially interesting. However the irony is that when things are busy less people tend to fill it in as they are more pressed for time. So if you can try to spare 3-4 minutes your help would be much appreciated. Many thanks.

It was a wild session for markets yesterday, with multiple asset classes swinging between gains and losses as investors sought to grapple with the extent of inflationary pressures and potential shock to growth. However US equities closed out in positive territory and at the highs as the news on the debt ceiling became more positive after Europe went home.

Before this equities had lost ground throughout the London afternoon, with the S&P 500 down nearly -1.3% at one point with Europe’s STOXX 600 closing -1.03% lower. Cyclical sectors led the European underperformance, although it was a fairly broad-based decline. However after Europe went home – or closed their laptops in many cases – the positive debt ceiling developments saw risk sentiment improve throughout the rest of New York session. The S&P rallied to finish +0.41% and is now slightly up on the week, as defensive sectors such as utilities (+1.53%) and consumer staples (+1.00%) led the index while US cyclicals fell back like their European counterparts. Small cap stocks didn’t enjoy as much of a boost as the Russell 2000 ended the day -0.60% lower, while the megacap tech NYFANG+ index gained +0.82%.

Risk sentiment improved following reports that Senate Minority Leader Mitch McConnell was willing to negotiate with Democrats to resolve the debt ceiling impasse and allow Democrats to raise the ceiling until December. This means President Biden and Congressional Democrats would be able to finish their fiscal spending package – now estimated at around $1.9-2.2 trillion – and include a further debt ceiling raise into one large reconciliation package near year-end. Senate Majority Leader Schumer has not publicly addressed the deal yet, but Democrats have signaled that they’ll accept the deal, although they’ve also indicated they’d still like to pass the longer-term debt ceiling bill under regular order in a bipartisan manner when the time came near year-end. Interestingly, if we did see the ceiling extended until December, this would put another deadline that month, since the government funding extension only went through to December 3, so we could have yet another round of multiple congressional negotiations in just a few weeks’ time.

The news of a Republican offer coincided with President Biden’s virtual meeting with industry leaders, where the President implored them to join him in pressuring legislators to raise the debt limit. Treasury Secretary Yellen also attended the meeting, and re-emphasised her estimate for the so-called “drop dead date” to be October 18. Potentially at risk Treasury bills maturing shortly thereafter rallied a few basis points, signaling investors took yesterday afternoon’s debt ceiling developments as positive and credible.

This was a far cry from where markets opened the London session as turmoil again gripped the gas market. UK and European natural gas futures both surged around +40% to reach an intraday high shortly after the open. However, energy markets went into reverse following comments from Russian President Putin that the country was set to supply more gas to Europe and help stabilise energy markets, with European futures erasing those earlier gains to actually end the day down -6.75%, with their UK counterpart similarly reversing course to close -6.96% too. The U.K. future traded in a stunning 255 to 408 price range on the day.

We shouldn’t get ahead of ourselves here though, since even with the latest reversal, prices are still up by more than five-fold since the start of the year, and this astonishing increase over recent weeks has attracted attention from policymakers across the world as governments look to step in and protect consumers and industry. In the EU, the Energy Commissioner, Kadri Simson, said that the price shock was “hurting our citizens, in particular the most vulnerable households, weakening competitiveness and adding to inflationary pressure. … There is no question that we need to take policy measures”. However, the potential response appeared to differ across the continent. French President Macron said that more energy capacity was required, of which renewables and nuclear would be key elements, while Italian PM Draghi said that joint EU gas purchases had wide support. However, Hungarian PM Orban took the opportunity to blame the European Commission, saying that the Green Deal’s regulations were “indirect taxation”, which shows how these price spikes could create greater resistance to green measures moving forward. Elsewhere, blame was also cast on carbon speculators, with Spanish environment minister Rodriguez saying that “We don’t want to be hostages of external financial investors”, and outside the EU, Serbian President Vucic said that his country could ban power exports if there were further issues, which just shows how energy has the potential to become a big geopolitical issue this winter.

Those declines in natural gas prices were echoed across the energy complex, with both Brent Crude (-1.79%) and WTI (-1.90%) oil prices subsiding from their multi-year highs the previous day, just as coal also fell -10.20%. In turn, that served to alleviate some of the concerns about building price pressures and helped measures of longer-term inflation expectations decline across the board. Indeed by the close, the 10yr breakeven in the US had come down -1.4bps, and the equivalent measures in Germany (-4.6bps), Italy (-6.1bps) and the UK (-4.2bps) had likewise seen declines of their own.

In spite of those moves for inflation expectations, this proved little consolation for European sovereign bonds as higher real rates put them under continued pressure, even if yields had pared back some of their gains from the morning. Yields on 10yr bunds (+0.6bps), OATs (+0.9bps) and BTPs (+3.2bps) were all at their highest levels in 3 months, whilst those on Polish 10yr debt were up +13.7bps after the central bank there unexpectedly became the latest to raise rates, with the 40bps hike to 0.5% marking the first increase since 2012. However, for the US it was a different story, with yields on 10yr Treasuries down -0.5bps to 1.521%, having peaked at 1.57% earlier in the London morning.

There was a late story in Europe that could bear watching in the coming weeks as Bloomberg reported that the ECB is studying a new bond-buying tool that could help ease market volatility if a “taper tantrum”-esque move were to happen when the PEPP purchases end in March. The plan would reportedly target purchases selectively if there were to be a larger selloff in more heavily indebted economies, which differs from the existing programs that buys debt in relation to the size of each member’s economy.

Asian stocks overnight have performed strongly, with the Hang Seng (+2.28%), Nikkei (+1.68%) and KOSPI (+1.61%) all advancing after the positive news on the debt-ceiling, as well on news that US President Biden was set to meeting with Chinese President Xi by the end of the year. All the indices were lifted by the IT and consumer discretionary sectors, and the Hang Seng Tech index has rebounded by +3.29% this morning. Separately, Evergrande-related news has been subsiding in recent days, but China Estates, a company controlled by a backer of Evergrande, rose 30% after the company disclosed an offer to take it private for $245mn. Otherwise, US futures are pointing to a positive start later, with those on the S&P 500 (+0.50%) and DAX (+1.19%) both advancing.

Turning to Germany, exploratory talks will be commencing today between the centre-left SPD, the Greens and the Liberal FDP, who together would make up a so-called “traffic-light” coalition. That marks a boost for the SPD, who beat the CDU/CSU bloc into first place in the September 26 election, although CDU leader Armin Laschet said that his party were “still ready to hold talks”. However, the CDU/CSU have faced internal tensions after they slumped to their worst-ever election result, whilst a Forsa poll out on Tuesday said that 53% of voters wanted a traffic-light coalition, versus just 22% who favoured the Jamaica option led by the CDU/CSU. So momentum seems clearly behind the traffic light option for now.

Looking at yesterday’s data, in the US the ADP’s report at private payrolls came in at an unexpectedly strong +568k (vs. +430k expected), which is the highest in their series for 3 months and comes ahead of tomorrow’s US jobs report. However in Germany, factory orders in August fell by -7.7% (vs. -2.2% expected) amidst various supply issues.

To the day ahead now, and data releases include German industrial production and Italian retail sales for August, whilst in the US we’ve got the weekly initial jobless claims and August’s consumer credit.From central banks, we’ll be getting the minutes from the ECB’s September meeting, and also hear from a range of speakers including the ECB’s President Lagarde, Lane, Elderson, Holzmann, Schnabel, Knot and Villeroy, along with the Fed’s Mester, BoC Governor Macklem and PBoC Governor Yi Gang.

Tyler Durden
Thu, 10/07/2021 – 07:57

via ZeroHedge News https://ift.tt/3adQHqD Tyler Durden

Default Averted For Now After Senate Reportedly Reaches Debt-Ceiling Deal

Default Averted For Now After Senate Reportedly Reaches Debt-Ceiling Deal

Following negotiations that stretched late into Wednesday evening, Democrats and Republicans have reportedly forged a compromise deal on a short-term increase in the the debt ceiling which will avoid default, but as Bloomberg notes, “threatens to exacerbate year-end clashes over trillions in government spending.”

In moving forward, Democrats appear to be on the verge of accepting a proposal from GOP leader Sen. Mitch McConnell (R-KY) which would raise the debt limit by a specific amount – enough to move things into December, when Congress will have to vote again to avoid a default.

While the details aren’t totally clear, McConnell’s offer was to allow a vote on extending the debt limit at a fixed collar amount – which Goldman’s Alec Phillips expects a number on over the next day or so.

“We’re making good progress,” Senate Majority Leader Chuck Schumer said in early Thursday morning comments from the Senate floor, adding “we hope to have agreement tomorrow morning,” adding that the Senate would come back into session at 10 a.m. Thursday.

That said, this is classic can-kicking which will have consequences down the road, as Democrats will likely attempt to move forward with their massive tax and spending package and separate infrastructure bill while at the same time funding the government to avoid yet another potential shutdown after December 3.

News of a possible debt-ceiling accord stoked the biggest positive turnaround in the equity market in more than seven months, as the S&P 500 Index closed up 0.4% after tumbling earlier. In the bond market, traders bid back up the prices of Treasuries set to mature in the window around a potential default. Investors then moved on to gauge which securities may now be most at risk of a missed or delayed payment under the new congressional timeframe. -Bloomberg

Treasury Secretary Janet Yellen has warned that the US would likely default after October 18 without congressional action. At present, the current debt limit is $28.4 trillion, while the Treasury reported that it had $343 billion in combined extraordinary measures and cash on hand.

As an approximation, during the period from Sep. 29 to Dec. 3, 2019, debt subject to limit (this includes marketable and non-marketable debt) increased by $356bn and the cash balance declined by $50bn, suggesting that the Treasury would use around $400bn in borrowing capacity by early December if cash flows are similar this year. Since the Treasury still had more than $300bn in room under the debt limit at the end of September, a debt limit increase to only $28.5-$28.6 trillion might be sufficient to accomplish the intent of the agreement, but the Treasury will be the final word on this and the amount will depend on expected cash flows this year. -Goldman Sachs

And while a fixed dollar amount (vs. a calendar-based solution) injects a bit of uncertainty as to when exactly the next deadline will hit, the debt deal alleviates concerns which were beginning to reverberate throughout the investment community. Earlier this week, McConnell sidestepped a question over whether any major banks or wall street titans had contacted him over the debt ceiling fight.

It was thought that the investment community would hammer Washington if lawmakers bumbled into a debt ceiling crisis. 

Worry started to permeate Washington that rating agencies could downgrade the creditworthiness of the U.S. before Oct. 18 – the deadline when Treasury says the U.S. will run out of cash. –Fox News

Senate Democrats have considered the debt deal a victory –  with Sen. Elizabeth Warren (D-MA) exclaiming on Wednesday that “McConnell caved,” adding “And now we’re going to spend our time doing child care, health care, and fighting climate change.”

From here, the focus will undoubtedly return to negotiations over Biden’s fiscal agenda – and in particular, the stalemate within the Democratic party between Senate moderates Joe Manchin (WV) and Kyrsten Sinema (AZ), who have vowed to sink any reconciliation plan that exceeds $1.5 trillion, and House progressives, who will likewise tank the $1.2 trillion bipartisan infrastructure deal unless Manchin and Sinema bend the knee.

Assuming that drags into December, expect fireworks into the end of the year.

Tyler Durden
Thu, 10/07/2021 – 07:35

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Finland Joins Sweden & Denmark By Limiting Use Of Moderna’s Jab In Young Men

Finland Joins Sweden & Denmark By Limiting Use Of Moderna’s Jab In Young Men

Finland became the latest Scandinavian country to impose new restrictions on the use of Moderna’s COVID jab, announcing Thursday that it would halt use of the jab for younger males due to the risk of rare but harmful side effects, including heart inflammation.

Following in the footsteps of Sweden and Denmark, the director of Finland’s health institute said the country would instead give the Pfizer jab to men born in 1991 or later. Presently, patients age 12 and older can be vaccinated in Finland.

Mika Salminen, the director of Finland’s health institute, blamed the new restrictions on data collected in a Nordic study.

“A Nordic study involving Finland, Sweden, Norway and Denmark found that men under the age of 30 who received Moderna Spikevax had a slightly higher risk than others of developing myocarditis,” he said.

Yesterday, Swedish and Danish health officials announced they would pause the use of the Moderna vaccine for all young adults and children, citing the same as-yet-unpublished unpublished study.

The Finns said the Nordic study would be published within a couple of weeks. Preliminary data has already been sent to the EMA for further assessment. The EMA, which is the pan-EU medicines regulator, determined back in July that rare cases of heart inflammation had been detected in some younger male patients.

Regulators in the US, as well as the WHO, have repeatedly insisted that the risks of the mRNA jabs are far outweighed by their benefits. Moderna executives have stepped up to defend their jab, while Italy’s Health Minister Roberto Speranza told reporters on Thursday that Italy wasn’t planning to suspend or limit use of the Moderna jab and said European countries should work together more closely to coordinate better.

Tyler Durden
Thu, 10/07/2021 – 07:02

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Why Shortages Are Permanent: Global Supply Shortages Make Fantastic Financial Sense

Why Shortages Are Permanent: Global Supply Shortages Make Fantastic Financial Sense

Authored by Charles Hugh Smith via OfTwoMinds blog,

The era of abundance was only a short-lived artifact of the initial boost phase of globalization and financialization.

Global corporations didn’t go to all the effort to establish quasi-monopolies and cartels for our convenience–they did it to ensure reliably large profits from control and scarcity. Not all scarcities are artificial, i.e. the result of cartels limiting supply to keep prices high; many scarcities are real, and many of these scarcities can be traced back to the stripping out of redundancy / multiple suppliers of industrial essentials to streamline efficiency and eliminate competition.

Recall that competition and abundance are anathema to profits. Wide open competition and structural abundance are the least conducive setting for generating reliably ample profits, while quasi-monopolies and cartels that control scarce supplies are the ideal profit-generating machines.

The incentives to expand the number of suppliers, i.e. increase competition, are effectively zero. America’s corporations spent $11 trillion buying back their own stocks over the past decade; that’s equal to the combined GDP of Japan, Germany and Italy. If adding new suppliers to the global supply chain were profitable, some of that $11 trillion would have exploited those vast profits.

The financial reality is attempting to compete with an established cartel that has captured regulatory and political mechanisms is a foolhardy waste of capital. If firing up a new supplier of essential solvents, etc. was so captivatingly profitable, the why wouldn’t Google and Apple take a slice of their billions in cash and go make some easy money?

The barriers to entry are high and the markets are limited. A great many specialty lubricants, solvents, alloys, wires, etc. are essential to the manufacture of all the consumer and industrial products that are sourced globally, but the markets are narrow: manufacturers need X amount of a specialty solvent, not 10X.

Back in the good old days before globalization and financialization conquered the world, corporations lined up three reliable suppliers for every critical component, as this redundancy alleviated supply chain chokeholds. But to keep those three suppliers in business, you need to spread the order book among all three. Nobody will keep a facility open if it’s only used occasionally when the primary supplier runs into a spot of bother.

And so now we’re all seated at the banquet of consequences flowing from stripping out redundancy and competition, and ceding control of supply chains to quasi-monopolies and cartels. Scarcities are their source of profits, and since it makes zero financial sense to spend a fortune building a plant to make solvents, lubricants, alloys, etc. in limited quantities in markets dominated by quasi-monopolies and cartels, shortages are a permanent feature of the 21st century global economy.

The era of abundance was only a short-lived artifact of the initial boost phase of globalization and financialization; now that the consolidation is complete, shortages make fantastic financial sense.

By all means thank Corporate America for squandering $11 trillion to further enrich the top 0.1% and insiders. Alas, there was no better use for all those trillions than further enriching the already-super-rich.

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Tyler Durden
Thu, 10/07/2021 – 06:30

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